Corporate Governance Practices and Firm Performance in Emerging Economies-Evidence from Indian Banks

Abstract

Effective Corporate Governance (CG) practices by adhering to regulatory guidelines, fostering transparency, and prioritising stakeholder interests have the potential to enhance financial outcomes. In the context of this intervening relation of CG and financial performance, the present research examines the CG practices in emerging economies through the case of banking sector in India and investigates its relationship with financial performance. Based on a sample of six public and six private Indian banks (with the highest market capitalisation) and using data from their annual reports for the time period (2010–2011 to 2019–2020), the unique Indian CG Scorecard (designed by BSE, IiAS, and IFC) is employed to calculate CG scores. Panel data regression analysis is applied to study the relation between CG scores and firm performance measures. The findings reveal that the CG score had a significant positive relation with market-based performance measure Tobin’s Q but its relationship with accounting measures ROA and ROE could not be established.

Keywords: Corporate Governance, Indian CG Scorecard, Indian Banks, Financial Performance, Emerging Economies, Sustainable Growth

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